India’s largest gold loan company Muthoot Finance is in talks with institutional investors to raise Rs. 400-550 crore by issuing 20-25 million fresh shares. “We have already done some road shows in the US and Singapore,” said Padma Kumar, executive director, Muthoot Finance. “We have created some investor interest and hopefully we should be able to conclude something shortly.” (Also read: Finance and Banking industry overview)

The issuance of shares will also help Muthoot Finace meet market regulator the Securities and Exchange Board of India’s (SEBI’s) guidelines of 25% minimum public shareholding.

According to SEBI guidelines, private sector companies have to increase public shareholding to 25% and public sector companies have to do the same to 10%. The deadline for private sector companies is June 2013, while for public sector companies it is August 2013. (Also read: Federal Bank: ‘Recruited 4000 employees in last three years')

“After the issuance of fresh shares, public holding in the company will go up while promoter’s holding will remain intact,” said Kumar.

The management is hoping for a good response from the issue following a Reserve Bank of India (RBI) report on the gold loan sector. “After the RBI committee report stated that gold loan companies are doing socially useful function, the uncertainty over the gold loan sector is gone,” he said. “Investors response is positive.” (Also read: Kotak Mahindra Capital ties up with Japanese firms)

The RBI-appointed Rao Committee said in a report last week that there were no systemic risk to the financial system because of gold loan companies.